Executive Summary

On January 18, the CFP Board issued proposed changes to its process for addressing bankruptcies of CFP professionals and candidates for certification. Under the current rules, CFP certificants and candidates who experience a single bankruptcy are subject to a hearing by the Disciplinary and Ethics Commission, which may result in disciplinary action including a private letter of censure, suspension, or revocation of the marks. Under the proposed rules, the disciplinary process would be eliminated, and replaced with a disclosure process that would require CFP certificants who experience a single bankruptcy to have such bankruptcy publicly disclosed on the CFP Board’s website for a period of 10 years, but no longer otherwise be subject to discipline or restrictions regarding the CFP marks. The comment period for the proposed changes ends on Friday, February 17th, and in today’s blog post I share my own comment letter feedback to the rule.

I am writing to submit comment regarding the proposed changes to the CFP Board’s process to address single bankruptcy filings by CFP certificants and candidates.

Unfortunately, I cannot agree entirely with the proposed changes, including the new non-disciplinary public disclosure process for a single bankruptcy, for the following reasons:

– Altering the treatment of bankruptcy by a CFP certificant or candidate amounts to a dramatic 180-degree reversal in the CFP Board’s established Fitness Standards for CFP candidates and registrants. The stated purpose of the fitness standards is “to ensure that an individual’s prior conduct would not reflect adversely upon the profession or the CFP certification marks.” Historically under the fitness standards, a financial planner who could not manage his/her own financial affairs was deemed to reflect adversely upon the profession and/or the CFP certification marks. In a world where financial planners continue to fight for credibility in the marketplace, I do not believe there is a need to alter this fitness standard. Indeed, a shift to both eliminate the disciplinary process for CFP candidates and registrants who face bankruptcy and add a public disclosure element amounts to a 180 degree reversal in the position of the fitness standards, as not only are candidates and registrants allowed to represent the marks and the profession despite failing to manage their own affairs and facing bankruptcy, but that fact that many CFP certificants cannot manage their own financial affairs is openly promoted under a disclosure standard! Although I realize that it can be controversial, in the spirit of the CFP Board’s mission to protect the public and the credibility of its marks, I support the fitness standards as they currently exist, where exceptions apply only on an individual basis based on the DEC’s interpretation of the facts and any mitigating circumstances. Furthermore, I question whether the public routinely verifies the status of a CFP certificant through the CFP Board’s website anyway – which means eliminating a disciplinary proceeding and introducing a mere disclosure requirement amounts to no protection at all. And for that matter, I believe it would detract from the marks further if we routinely encouraged members of the public to go to the CFP Board’s website, just to verify whether a CFP certificant has public record of concern; if the CFP marks are intended to be the gold standard, doesn’t that imply the public should be comfortable to rely on them without seeking to verify if their are public disclosures of concern!? I believe this proposal represents a significant and adverse diminishment in the fitness standards and therefore a diminishment in protecting the credibility of the marks pursuant to the CFP Board’s mission.

– The implied purpose of this change is to allow the CFP Board to allocate more resources to other disciplinary and ethics matters, such as "fraud, misrepresentation, and misappropriation of funds." This hardly seems necessary nor appropriate in a world where bona fida legal regulators, not to mention the legal system itself, already oversee the activities of those licensed to provide insurance or investment advice or products regarding this type of clearly illegal behavior. Not only does the CFP Board not have legal standing to investigate most of these matters anyway, but investigation by a bona fide regulator followed by a guilty finding would generally bar an individual from practice anyway, making the CFP Board’s investigation a moot point. The CFP Board already has a process to initiate disciplinary action against a CFP certificant found guilty of regulatory or legal misdeeds, including fraud, misrepresentation, and misappropriation of funds; it is unclear why the CFP Board would require more resources to provide investigation and enforcement in such already-regulated areas, nor is it clear whether the CFP Board would have any capability to be more effective than existing regulators by dedicating its resources in this manner. In fact, given the reality that the CFP Board is not a legally recognized regulator, it would appear to me that the primary purpose of the CFP Board’s DEC is to monitor the behavior of its certificants in areas not already covered by other regulators or parts of the law to be consistent with its mission, which means overseeing issues like the fitness of a certificant to practice after a personal bankruptcy is in fact the ideal allocation of DEC resources.

– Another stated purpose of this change is to allow the CFP Board to provide notice to the public that a CFP professional has filed bankruptcy. Of course, under enforcement of the existing Fitness Standards, this has generally been unnecessary, as any such bankruptcy would have potentially barred the individual from the marks anyway, and presumably in situations where the DEC found it appropriate to allow the marks despite a bankruptcy, such mitigating circumstances would make disclosure less of a concern. In addition, the reality is that disclosures of bankruptcy by licensed individuals is already required by both the SEC on Form ADV Part II, and by FINRA on Form U-4, making the CFP Board’s disclosure efforts redundant at best for the overwhelming majority of CFP certificants. And of course, the fact remains, as noted earlier, that I believe the current Fitness Standards represent an appropriate position of the CFP Board to protect the public and the credibility of its marks, which means many such bankruptcies would already bar the individual from the marks anyway, eliminating the need for disclosure at all.

Notwithstanding the aforementioned concerns, I do believe that the alterations of the proposed changes regarding bankruptcy are appropriate in one regard – the elimination of a prior bankruptcy by a CFP candidate (but not registrant) from the disciplinary process. The purpose of the fitness standards is to ensure that the behavior of certificants will not reflect adversely upon the marks and the profession; accordingly, it seems clearly that the greatest conflict would arise when a current certificant, who has been personally trained as a financial planner, fails to manage his/her own affairs without any mitigating circumstances (which can be evaluated by the DEC). On the other hand, it is unclear to me why prior financial struggles of a certificant before that training occurred has any bearing on the situation; in fact, many financial planners come to the profession specifically because they have overcome prior financial difficulties, educated and improved themselves, and now seek to help others. Furthermore, I find that certificants who have had prior bankruptcies but now manage their financial affairs effectively as a CFP certificant often have greater credibility and a better ability to connect with and relate to clients because of their own experiences. Accordingly, I would suggest that while the current rules regarding single bankruptcies should be retained for a single bankruptcy by a current CFP certificant – including a disciplinary process by the DEC to determine whether a disciplinary action is appropriate – a single bankruptcy that occurred prior to a CFP certificant beginning the CFP certification process should have no bearing on the fitness standards at all. Even if the current rules are adopted in proposed form, I hope that the CFP Board will consider focusing on disclosures of current CFP certificants, not the single bankruptcy of a CFP candidate before he/she even began his/her financial education.

So what do you think? Do you agree with my comments? Disagree? What about the proposed changes themselves? If you haven’t yet, there’s still time to submit your own comment to the CFP Board by emailing compliance@CFPBoard.org.